S. K. Tulsiyan, Adv. for the Petitioner. Ram Bilash Meena, CIT(DR) for the Respondent. for the Respondent.

This assessee’s appeal for assessment year 2014-15 arises against the Principal Commissioner of Income-tax, Central-1, Kolkata’s order dated 20.03.2017 involving proceedings u/s 143(3) of the Income Tax Act, 1961; (in short ‘the Act’).

Heard both the parties. Case file persued.

2. Case file suggests at the outset that the assessee’s instant appeal suffers from 291 days’ delay in filing. Its condonation petition, duly supported by affidavit dated 12.03.2018 has attributed the same to pendency of insolvency and bankruptcy proceedings before the National Company Law Tribunal which admitted on 30.03.2017. All this sufficiently indicates that the impugned delay was neither intentional nor deliberate but on account of circumstances beyond assessee’s control. We quote hon’ble apex court in Collector, Land Acquisition vs. Mst. Katji & Ors [1987] 167 ITR 0471 (SC) that all technical aspects must make way for the cause of substantial justice and condone the delay herein of 291 days.

The case is now taken up for adjudication on merits.

3. We advert to the basic relevant facts. This assessee is a company engaged in road infrastructure development and maintenance business. It files its original return on 29.09.12 declaring total income of Rs.85,69,37,910/-. The Assessing Officer thereafter completed the regular assessment in question dated 30.03.2015 inter alia disallowing/adding section 35D deduction claim & exemption on profit from joint venture(s) and section 14A disallowance involving Rs.1,12,60,000/-, Rs.40,38,000/- & Rs.2,48,10,148/-; respectively.

4. Case file suggests that PCIT termed the foregoing regular assessment as an erroneous one causing prejudice to the interest of the Revenue as follows:

5. He thus issued section 263 show-cause notice dated 27.02.17. The assessee appears to have filed a detailed response dated 10.03.17 contesting the PCIT’s revision proposal inter alia pleading therein that the Assessing Officer had rightly accepted its section 80IA deduction claim thereby not treating it as a mere “works contractor”. The PCIT’s order under challenge has rejected the same with direction the Assessing Officer to frame a fresh assessment after carrying out proper and adequate verification/enquiry with respect to the assessee’s 80IA deduction claim as follows:

“Considering the above facts, notice u/s 263 dated 27.02.2017 was issued and duly served upon the assessee allowing the assessee an opportunity of being heard. In response to the above notice u/s 263, the assessee furnished written submission, the excerpts of which are reproduced as under:

"We reply as follows:

Section 80-1A of the Income Tax Act read as follows:

(1) Where the gross total income of an assessee includes any profits and gains derived by an undertaking or an enterprise from any business referred to in sub-section (4) (such business being hereinafter referred to as the eligible business), there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business for ten consecutive assessment years.

(2) The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any ten consecutive assessment years out of fifteen years beginning from the year in which the undertaking or the enterprise develops and begins to operate any infrastructure facility or starts providing telecommunication service or develops an industrial park or develops a special economic zone referred to in clause (in) of sub-section (4) or generates power or commences transmission or distribution of power or undertakes substantial renovation and modernization of the existing transmission or distribution lines:

Provided that where the assessee develops or operates and maintains or develops,operates and maintains any infrastructure facility referred to in clause (o) or clause (b) or clause (c) of the Explanation to clause (i) of sub-section (4), the provisions of this sub-section shall have effect as if for the words fifteen years", the words "twenty years" had been substituted.

(2A) Notwithstanding anything contained in sub-section (1) or sub-section (2), the deduction in computing the total income of an undertaking providing telecommunication services, specified in clause (i) of sub-section (4), shall be hundred per cent of the profits and gains of the eligible business for the first five assessment years commencing at any time during the periods as specified in sub-section (2) and thereafter, thirty per cent of such profits and gains for further five assessment year.

(3) This section applies to an undertaking referred to in clause (i) or clause (iv) of sub-section (4) which fulfils all the following conditions, namely:

(i) it is not formed by splitting up, or the reconstruction, of a business already in existence:

Provided that this condition shall not apply in respect of an undertaking which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as is referred to in section 33B, in the circumstances and within the period specified in that section;

(iii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose:

Provided that nothing contained in this sub-section shall apply in the case of transfer,either in whole or in part, of machinery or plant previously used by a State Electricity Board referred to in Clause (7) of section 2 of the Electricity Act, 2003 (36 of 2003),whether or not such transfer is in pursuance of the splitting up or reconstruction or reorganization of the Board under Part XIll of that Act.

For the purposes of clause (i), any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if the following conditions are fulfilled, namely:

(a) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India;

(b) Such machinery or plant is imported into India from any country outside India; and

(c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of machinery or plant by the assessee.

Where in the case of an undertaking, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (i) of this sub-section, the condition specified therein shall be deemed to have been complied with.

(4) This section applies to-

(i) any enterprise carrying on the business of (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining any infrastructure facility which fulfils all the following conditions, namely:-

(a) it is owned by a company registered in India or by a consortium of such companies or by an authority or a board or a corporation or any other body established or constituted under any Central or State Act;

(b) it has entered into an agreement with the Central Government or a State Government or a local authority or any other statutory body for (i) developing or (ii) operating and maintaining or (iii) developing, operating and maintaining a new infrastructure facility;

c) it has started or starts operating and maintaining the infrastructure facility on or after the 1st day of April, 1995;

Provided that where an infrastructure facility is transferred on or after the 1st day of April, 1999 by an enterprise which developed such infrastructure facility (hereafter referred to in this section as the transferor enterprise) to another enterprise (hereafter in this section referred to as the transferee enterprise) for the purpose of operating and maintaining the infrastructure facility on its behalf in accordance with the agreement with the Central Government, State Government local authority or statutory body, the provisions of this section shall apply to the transferee enterprise as if it were the enterprise to which this clause applies and the deduction from profits and gains would be available to such transferee enterprise for the unexpired period during which the transferor enterprise would have been entitled to the deduction, if the transfer had not taken place.

For the purposes of this clause, “infrastructure facility” means-

(a) a road including toll road, a bridge or a rail system;

(b) a highway project including housing or other activities being an internal part of the highway project.

After going through the provisions of the Act, background of the provisions as well as the legislative intent coupled with important arguments in favour and against the provisions,following important areas emerge, which are to be kept in mind by the Assessing Officer at the time of investigation as well as drafting the assessment order.

The Explanatory Memorandum to Finance Act 2007 clearly states that the purpose of the tax benefit has all along been to encourage investment in development of infrastructure section and not for the persons who merely execute the civil construction work. It categorically states that the incentive is intended to benefit developers who undertake entrepreneurial and investment risk and not contractors who only undertake huge risks, deployment of technical personnel, Plant and machinery, technical expertise, know-how and financial resources. Distinction between the two would be the key to determine the eligibility for tax holiday. Typically, this difference can be brought out based on the following parameters:

Capital investment: Whether the investment is intended for the project as a whole or merely with respect to construction activity.

Risks undertaken: Entrepreneurial risk associated to the project versus risk limited to the services provided or work done.

Responsibility: Designing and execution versus execution based on instructions. Performance guarantees: Extended to entire project (including issues arising due to external factors) versus covering construction work done alone (limited to work done by the contractor).

During the year under consideration the assessee was engaged in the business of road infrastructure and maintenance generally and in particular:

1. The Company is implementing a 76.60 kms BOT kms project of Seoni-Katangi Maharashtra Border Section of State Highway 54 for Madhya Pradesh Road Development Ltd., a State Government undertaking;

2. The company is also executing the project of Strengthening, widening, maintaining and operating of 18,303 kms Woraseoni-Lalbarra Road of Madhya Pradesh on BOT (Annuity + Toll) basis, awarded by MPRDC, a state government undertaking;

3. The Company is executing the project for Improvement/Upgradation of Shivguni Rafigunj-Goh-Uphara-Devkund-Baldrabad Road(SH-68) Length 78.00 kms Awarded by Executive Engineer, SH Division, RCD Gaya: and

4. The Company is executing the project for Improvement /Strengthening of State Rood in district of Nainital and Udham Singh Nagar, awarded by the Project Director/chief Engineer, P.M.U, A.D. B, Transport), PWD, Dehradun (Uttarakhand). From the requirements of Section 80IA as discussed and the nature of business the assessee is engaged in, the following conclusions can be arrived at:

a) The assessee is carrying on the business of developing, operating and maintaining the infrastructure facility

b) it is owned by a company registered in India or by a consortium of such companies [or by an authority or a body or a corporation or any other body shall be constituted generally under Central or State Act).

c) It has entered into an Agreement with a State Government or a local authority or any other statutory body.

d) It has started operating and maintaining the infrastructure facilities on or after 1st day of April, 1995.

e) It is engaged in the business of road infrastructure development and maintenance which comes within the purview of [infrastructure facility'] as is required under Section 80IA as discussed above.

The matter has also been discussed at various judicial courts at length and a separate note regarding allowability of deduction under section 801A is enclosed for your perusal and needful.

Since the assessee complies with all the requirement of Section 801A, it is eligible for deduction of amount equal to 100% of the profits and gains derived from such business, your good self will appreciate.”]

4. It is observed from the Assessment Records the Assessing Officer had allowed the claim of deductions u/s 801A of the Income Tax Act, 1961, relying solely on the Claim of the assessee, without making any enquiry into the fact as to whether such claim was indeed admissible to the assessee. The Assessing Officer was required to have enquired into the agreement of the assessee with the Executive Engineer, SH Division, RCD Gaya and the Project Director/Chief Engineer, P.M.U., A.D.B.(Transport), PWD, Dehradun, Uttarakhand to ascertain the role of the assessee in these projects. All the clauses and fine tunings of such agreements should have been examined by the AO during the course of scrutiny proceedings u/s 143(3), to ascertain the exact role of the assessee in such projects. Before determining as to whether the assessee is eligible for deduction u/s 801A, the following points should have been investigated by the AO -

a) Whether the agreements in question, covers the development of the project or it also involves financing by the assessee

b) Whether the risk of the investment is being borne by the assessee.

To ascertain the clear picture from the impugned agreements, the stipulations in the agreement needs microscopic examination. Each and every clause of the agreement, all the fine tunings/ tweaking in the operational clauses needs to be examined thoroughly to ascertain the actual nature of agreement to arrive at a conclusive finding as to whether the assessee is eligible for deduction u/s 801A. Lack of enquiry, allowing the deductions claimed by the assessee, in contravention to the explanatory provisions of section 801A of the Income Tax Act, 1961, thus, makes the assessment order erroneous and revenue has suffered on account of such lack of enquiry by the AO, thereby making the order prejudicial to the interest of revenue. The various judicial pronouncements relied upon by the assessee are clearly distinguishable and hence not applicable to the facts of the instant case. It is well established that the Assessing Officer being a quasi-judicial authority can't take a view, either against or in favour of the assessee/revenue, without making proper inquiries and proper examination of the claim made by the assessee in the light of existing provisions of law.

The Assessing Officer has been entrusted the role of an investigator, prosecutor as well as adjudicator under the Scheme of the Income Tax Act.

If he commits an error while discharging the aforesaid roles and consequently passes an erroneous order causing prejudice to the revenue, the order so passed by him is liable to be corrected.

In this Context, it may be mentioned here that in the case of Commissioner of Income tax, Central-1 Kolkata Vs Maithan International, it was held by Calcutta High Court [2015] 56 taxmann.com 283(Calcutta) that "it is not the law that the Assessing Officer occupying the position of an investigator and adjudicator can discharge his function by perfunctory or inadequate investigation. Such a course is bound to result in erroneous and prejudicial order. Where the relevant enquiry was not undertaken, as in the Case, the order is erroneous and prejudicial too and therefore revisable. Investigation should always be faithful and fruitful. Unless all fruitful areas or enquiry are pursued the enquiry cannot be said to have been faithfully conducted."

The Hon'ble Supreme Court, further, in the case of Rampyari Devi Saraogi-vs- CIT(1968) 67 ITR 87(SC) and Smt. Tara Devi Agarwal-Vs-CIT(1973) 8B ITR 323(SC) has held that in absence of proper enquiries, the assessment order would become erroneous and prejudicial to the interest of the revenue.

The Hon'ble Delhi High Court in the case of Gee Vee Enterprise-Vs-Addl. CIT(1975) 99 ITR 375 has also held as under:-

"The reason is obvious. The position and function of the income tax officer is very different from that of a Civil Court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a Civil Court in the absence of rebuttal. The Civil Court is neutral. It simply gives decision on the basis of pleading and evidence which comes before it. The income tax officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of return which is apparently in order but calls for further enquiry. It is his duty to ascertain the truth of facts stated in the return when the circumstances of Case are such as to provoke an enquiry. The meaning to be given to the word "erroneous” in section 263 emerges out of this context. It is because it is incumbent on the income tax officer to further such an enquiry prudent that the word "erroneous" in section 263 includes the failure to make such an enquiry.

The order becomes erroneous because such an enquiry has not been and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct."

In view of the facts and the legal position stated above, I am of the view that the order passed on an incorrect assumption of facts or incorrect application of law and inquiries will satisfy the requirement of the order being without making requisite erroneous and pre-judicial to the interest of the revenue within the meaning and scope of Section 263 of the Income Tax Act, 1961.

This leaves the assessee aggrieved.

6. We have given our thoughtful consideration to rival pleadings. The assessee’s paper-books containing its Form 10CCB for the impugned assessment year, agreements entered with the Government of Bihar and Uttarakhand for improvement/upgradation of roads and bridges of Shivganj-Rafiganj-Goh-Uphara-Devkund-Baidrabad Road and state road in the districts of Nanital and Udham Singh Nagar (paper book I running into 470 pages), copy of the acknowledgement, audited accounts, communication(s), original assessment order,copy of the show cause notice dt.27.02.2017, copy of the Letter of the assessee dt.10.03.2017 (paper book II running into 123 pages); respectively stand perused.

7. Since the instant lis contains the issue of correctness of PCIT’s action exercising his revision jurisdiction vested u/s 263 of the Act, we deem it appropriate to refer to various landmark decisions. Case law Malabar Industries Ltd. [2000] 243 ITR 83 (SC) holds that before such a recourse is taken by the CIT or the PCIT, as the case may be, assessment in question has to be both erroneous as well as prejudicial to interest of the Revenue; simultaneously. And also that not each and every assessment fulfils the foregoing twin conditions in case the Assessing Officer has taken one of the plausible views which cannot be substituted by the revision authority’s conclusion. Hon’ble jurisdictional high court in Zigma Commodities vs. ITO (2014) 365 ITR 276 (Cal) also holds that an erroneous assessment order is the only one wherein the Assessing Officer has not acted as per law and not in case when the PCIT is not satisfied with the same or when two views are possible. CIT vs. Max India Ltd. (2007) 295 ITR 282(SC) holds that every loss of revenue as a consequence of an assessment order could not be termed as prejudice to interest of the Revenue when the Assessing Officer had adopted one of the two permissible vies in law. Case law CIT vs. Gabriel India Ltd. (1993) 208 ITR 108(Bom) also held that the mere fact of Assessing Officer not having incorporated the corresponding findings in the assessment order does not render the same as an erroneous one causing prejudice to interest of the revenue in case framed after making all due enquiries as per law.

8. We keep in mind the preceding settled legal proposition to deal with the relevant facts involved in the instant lis. It is not in dispute that the sole substantive reason for the PCIT to set section 263 machinery in motion; as per his show-cause notice extracted hereinabove, is that the legislature has inserted Explanation to sub-section 4 of section 80IA declaring that this deduction provision does not apply in case of “works contractor” awarded by any person (including the central or state Government) and executed and undertaken by an enterprise referred to sub-section 1 thereof. He therefore holds the assessee to be a mere works contractor not entitled for section 80IA deduction which had wrongly accepted during the course of regular assessment framed on 30.03.15.

9. Mr. Tulsiyan at this stage invited our attention to pages 28 to 53 in the case file containing the tribunal’s order dated 23.12.19 in preceding two assessment years i.e. 2010-11 and 2011-12 adjudicating upon the above issue of section 80IA deduction against the department and its taxpayer’s favour. He further invited our attention to page 41 containing the corresponding development agreements dated 27.10.09 making it clear that “Shivgunj” project (supra) also formed part of identical section 80IA deduction claim in the said assessment years 2010-11 & 2011-12 as well as the impugned assessment year 2012-13 having the corresponding sums of Rs.2,70,151/-, Rs.47996520/- and Rs.101,732,513/-; respectively. He also invited our attention to the corresponding project agreements pages 33 to 298 to this effect. Mr. Tulsiyan then took us the assessee’s performance guarantee of Rs.16,85,27,765/- in favour of the Executive Engineer, State Highway Division, Road Construction department as well as corresponding clauses in the said agreement making it clear that it was the assessee only having undertaken the risk involved in the said road projects. Almost identical are the corresponding agreement conditions in the Nanital and Udham Singh Nagar project (supra) having been executed at the assessee’s behest in Uttarakhand state forming part of the records in pages 299 to 470 making it had borne the similar business risks therein. Mr. Tulsiyan then referred to assessee’s equipment, work-force, royalties and demurrage clauses followed by indemnity stipulation that the assessee not only had to carry out the project but also to bear the future risks in these twin projects. He further sought to clarify that this assessee is held entitled to section 80IA deduction from assessment year 2005-06 onwards to assessment year 2014-15 and a detailed list thereof sufficiently indicates that it had undertaken 17 road infrastructure projects from assessment year 2010-11. His case therefore is that Assessing Officer’s regular assessment accepting section 80IA deduction claim was neither an erroneous one nor prejudicial to interest of the Revenue and therefore, the PCIT has erred in law and on facts in invoking his section 263 revision jurisdiction not sustainable.

10. Learned counsel’s next invited our attention to the PCIT’s 263 show-cause notice making it clear that the Assessing Officer wrongly accepted the assessee’s section 80IA deduction claim in the regular assessment dated 30.03.15 and on the other hand he has merely restored the issue back to the Assessing Officer for framing afresh assessment after carrying out adequate and proper enquiries / factual verification in consequential proceedings. He quoted case laws (2005) 13 SCC 419 Amrit Foods Vs. Commissioner of Central Excise and CCE, dated 26.10.2005 and Civil Appeal No.3417 of 2002 dated 15.06.07 that such a course of action in PCIT’s show-cause notice and his revision order under challenge is also not permissible in law.

11. Learned CIT-DR, on the other hand, strongly supported the PCIT’s revision action on the ground that the Assessing Officer had wrongly treated not as a works contractor under 80IA(4) Explanation as per the corresponding show-cause notice and therefore, the issue had been rightly restored to the Assessing Officer for his afresh adjudication.

12. After giving our thoughtful consideration, we find no reason to sustain the PCIT’s revision order under challenge. It has sufficiently been highlighted in the preceding paragraphs that this assessee is a company engaged in road infrastructure development and maintenance business from assessment year 2005-06 onwards. It has developed at least 17 projects (supra) from assessment year 2010-11 out of which some of the projects i.e. “Shivgunj” has formed part of tribunal’s adjudication on the very issue from assessment year 2010-11 and 2011-12 vide order dated 23.12.19 holding it as a entity for similar section 80IA relief. Learned coordinate bench holds in very clear terms that it is the assessee only who has not only employed plant and machinery and to other assets along with the staff but also it had been bearing all the risks involved in the said infrastructure projects and therefore, it could not have been treated a mere works contractor. We have ourselves perused the corresponding twin infrastructure development agreements in pages 33 to 470 of PB-1 involving identical project stipulations to be performed at the assessee’s behest which sufficiently reveal that there has not been any deviation vis-à-vis all other similar projects in the impugned assessment year. The Assessing Officer has also accepted assessee’s section 80IA deduction in succeeding assessment years 2013-14 and 2014-15 as well and the corresponding preceding assessment years since assessment orders to this effect have been placed before us in pages 109 to 115and 116 to 123 of PB-2. No disallowance has been made qua section 80IA deduction claim in any of these assessments which have attained finality. That being so, we conclude that the Assessing Officer had taken only the plausible view in accepting the assessee’s section 80IA deduction claim in his assessment dated 30.03.2015 u/s 143(3) of the Act. The PCIT exercise of impugned revision jurisdiction is held as not sustainable in the eyes of law going by the foregoing settled legal proposition (supra). The same is accordingly reversed.

13. We also find that the PCIT’s revision show-cause notice had treated the section 143(3) assessment herein as a case of Assessing Officer having erroneously accepted the assessee’s section 80IA deduction claim whereas his section 263 order under challenge has merely restored the issue back to the Assessing Officer for afresh adjudication. Case law ITO vs. DG Housing Projects Ltd. 343 ITR 319 holds that such a course of action is not permissible in section 263 revision jurisdiction as under:

“8. The Tribunal has set aside the order observing that the CIT had not held and come to the conclusion or given a finding that the actual receipt of consideration was more than what was declared in the return. The CIT had not recorded any finding that the sale consideration of the property was higher. It has been held that the CIT could not have made any addition under Section 50C as the stamp duty had not been enhanced by the registering authority and the sale deed was registered. It was not the case of the CIT that any extra stamp duty over and above the transaction value was payable because of the circle rates. The order under Section 263 of the Act was set aside/cancelled. Accordingly,Revenue is in appeal.

9. Section 263 of the Act, reads as under:-

"263. Revision of orders prejudicial to revenue.--(1) The Commissioner may call for and examine the record of any proceeding under this Act, and if he considers that any order passed therein by the Assessing Officer is erroneous in so far as it is prejudicial to the interest of the revenue, he may, after giving the assessee an opportunity of being heard and after making or causing to be made such inquiry as he deems necessary, pass such order thereon as the circumstances of the case justify, including an order enhancing or modifying the assessment, or cancelling the assessment and directing a fresh assessment. Explanation.--For the removal of doubts, it is hereby declared that, for the purposes of this sub-section,--

(a) an order passed on or before or after the 1st day of June, 1988 by the Assessing Officer shall include--

(i) an order of assessment made by the Assistant Commissioner or Deputy Commissioner or the Income Tax Officer on the basis of the directions issued by the Joint Commissioner under Section 144-A;

(ii) an order made by the Joint Commissioner in exercise of the powers or in the performance of the functions of an Assessing Officer conferred on, or assigned to, him under the orders or directions issued by the Board or by the Chief Commissioner or Director General or Commissioner authorised by the Board in this behalf under Section 120;

(b) "record" shall include and shall be deemed always to have included all records relating to any proceeding under this Act available at the time of examination by the Commissioner;

(c) where any order referred to in this sub-section and passed by the Assessing Officer had been the subject-matter of any appeal filed on or before or after the 1st day of June, 1988, the powers of the Commissioner under this sub- section shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in such appeal.

(2) No order shall be made under sub-section (1) after the expiry of two years from the end of the financial year in which the order sought to be revised was passed.

(3) Notwithstanding anything contained in sub-section (2), an order in revision under this section may be passed at any time in the case of an order which has been passed in consequence of, or to give effect to, any finding or direction contained in an order of the Appellate Tribunal, National Tax Tribunal, the High Court or the Supreme Court. Explanation.--In computing the period of limitation for the purposes of sub-section (2), the time taken in giving an opportunity to the assessee to be reheard under the proviso to Section 129 and any period during which any proceeding under this section is stayed by an order or injunction of any court shall be excluded."

10. Revenue does not have any right to appeal to the first appellate authority against an order passed by the Assessing Officer. Section 263 has been enacted to empower the CIT to exercise power of revision and revise any order passed by the Assessing Officer, if two cumulative conditions are satisfied. Firstly, the order sought to be revised should be erroneous and secondly, it should be prejudicial to the interest of the Revenue. The expression „prejudicial to the interest of the Revenue‟ is of wide import and is not confined to merely loss of tax. The term „erroneous‟ means a wrong/incorrect decision deviating from law. This expression postulates an error which makes an order unsustainable in law.

11. The Assessing Officer is both an investigator and an adjudicator. If the Assessing Officer as an adjudicator decides a question or aspect and makes a wrong assessment which is unsustainable in law, it can be corrected by the Commissioner in exercise of revisionary power. As an investigator, it is incumbent upon the Assessing Officer to investigate the facts required to be examined and verified to compute the taxable income.

If the Assessing Officer fails to conduct the said investigation, he commits an error and the word „erroneous‟ includes failure to make the enquiry. In such cases, the order becomes erroneous because enquiry or verification has not been made and not because a wrong order has been passed on merits.

12. Delhi High Court in Gee Vee Enterprises vs. Additional Commission of Income-Tax, Delhi-I & Ors.,(1975) 99 ITR 375, has observed as under:-

"The reason is obvious. The position and function of the Income-tax Officer is very different from that of a civil court. The statements made in a pleading proved by the minimum amount of evidence may be accepted by a civil court in the absence of any rebuttal. The civil court is neutral. It simply gives decision on the basis of the pleading and evidence which comes before it. The Income-tax Officer is not only an adjudicator but also an investigator. He cannot remain passive in the face of a return which is apparently in order but calls for further inquiry. It is his duty to ascertain the truth of the facts stated in the return when the circumstances of the case are such as to provoke an inquiry. The meaning to be given to the word "erroneous" in section 263 emerges out of this context. It is because it is incumbent on the Income-tax Officer to further investigate the facts stated in the return when circumstances would make such an inquiry prudent that the word "erroneous" in section 263 includes the failure to make such an inquiry.

The order becomes erroneous because such an inquiry has not been made and not because there is anything wrong with the order if all the facts stated therein are assumed to be correct."

13. In the said judgment, Delhi High Court had referred to earlier decisions of the Supreme Court in Rampyari Devi Sarogi vs. CIT (1968) 67 ITR 84 (SC) and Tara Devi Aggarwal vs. CIT (1973) 88 ITR 323 (SC), wherein it has been held that where Assessing Officer has accepted a particular contention/issue without any enquiry or evidence whatsoever, the order is erroneous and prejudicial to the interest of the Revenue. After reference to these two decisions, the Delhi High Court observed:-

"These two decisions show that it is not necessary for the Commissioner to make further inquiries before cancelling the assessment order of the Income-tax Officer. The Commissioner can regard the order as erroneous on the ground that in the circumstances of the case the Income-tax Officer should have made further inquiries before accepting the statements made by the assessee in his return."

14. The aforesaid observations have to be understood in the factual background and matrix involved in the said two cases before the Supreme Court. In the said cases, the Assessing Officer had not conducted any enquiry or examined evidence whatsoever.

There was total absence of enquiry or verification. These cases have to be distinguished from other cases (i) where there is enquiry but the findings are incorrect/erroneous; and

(ii) where there is failure to make proper or full verification or enquiry.

15. In the case of Commissioner of Income Tax vs. Sunbeam Auto Ltd. (2011) 332 ITR 167 (Del), Delhi High Court was considering the aspect, when there is no proper or full verification, and it was held as under:-

"We have considered the rival submissions of the counsel on the other side and have gone through the records. The first issue that arises for our consideration is about the exercise of power by the Commissioner of Income-tax under section 263 of the Income-tax Act. As noted above, the submission of learned counsel for the Revenue was that while passing the assessment order, the Assessing Officer did not consider this aspect specifically whether the expenditure in question was revenue or capital expenditure. This argument predicates on the assessment order, which apparently does not give any reasons while allowing the entire expenditure as revenue expenditure.

However, that by itself would not be indicative of the fact that the Assessing Officer had not applied his mind on the issue. There are judgments galore laying down the principle that the Assessing Officer in the assessment order is not required to give detailed reason in respect of each and every item of deduction, etc. Therefore, one has to see from the record as to whether there was application of mind before allowing the expenditure in question as revenue expenditure. Learned counsel for the assessee is right in his submission that one has to keep in mind the distinction between "lack of inquiry" and " inadequate inquiry" . If there was any inquiry, even inadequate that would not by itself give occasion to the Commissioner to pass orders under section 263 of the Act, merely because he has a different opinion in the matter. It is only in cases of "lack of inquiry" that such a course of action would be open. In Gabriel India Ltd. [1993] 203 ITR 108 (Bom), law on this aspect was discussed in the following manner (page 113):

" . . . From a rending of sub-section (1) of section 263, it is clear that the power of suo motu revision can be exercised by the Commissioner only if, on examination of the records of any proceedings under this Act, he considers that any order passed therein by the Income-tax Officer is „erroneous in so far as it is prejudicial to the interests of the Revenue‟ . It is not an arbitrary or unchartered power, it can be exercised only on fulfilment of the requirements laid down in sub-section (1). The consideration of the Commissioner as to whether an order is erroneous in so far as it is prejudicial to the interests of the Revenue, must be based on materials on the record of the proceedings called for by him. If there are no materials on record on the basis of which it can be said that the Commissioner acting in a reasonable manner could have come to such a conclusion, the very initiation of proceedings by him will be illegal and without jurisdiction. The Commissioner cannot initiate proceedings with a view to starting fishing and roving enquiries in matters or orders which are already concluded. Such action will be against the well- accepted policy of law that there must be a point of finality in all legal proceedings, that stale issues should not be reactivated beyond a particular stage and that lapse of time must induce repose in and set at rest judicial and quasi-judicial controversies as it must in other spheres of human activity. (See Parashuram Pottery Works Co. Ltd. v. ITO [1977] 106 ITR 1 (SC) at page 10) . . . From the aforesaid definitions it is clear that an order cannot be termed as erroneous unless it is not in accordance with law. If an Income- tax Officer acting in accordance with law makes a certain assessment, the same cannot be branded as erroneous by the Commissioner simply because, according to him, the order should have been written more elaborately. This section does not visualise a case of substitution of the judgment of the Commissioner for that of the Income-tax Officer, who passed the order unless the decision is held to be erroneous. Cases may be visualised where the Income-tax Officer while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the Income-tax Officer. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the Income-tax Officer has exercised the quasi-judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be formed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion . .

There must be some prima facie material on record to show that tax which was lawfully exigible has not been imposed or that by the application of the relevant statute on an incorrect or incomplete interpretation a lesser tax than what was just has been imposed . . . We may now examine the facts of the present case in the light of the powers of the Commissioner set out above. The Income-tax Officer in this case had made enquiries in regard to the nature of the expenditure incurred by the assessee. The assessee had given detailed explanation in that regard by a letter in writing. All these are part of the record of the case.

Evidently, the claim was allowed by the Income-tax Officer on being satisfied with the explanation of the assessee. Such decision of the Income-tax Officer cannot be held to be „ erroneous‟ simply because in his order he did not make an elaborate discussion in that regard.""

16. Thus, in cases of wrong opinion or finding on merits, the CIT has to come to the conclusion and himself decide that the order is erroneous, by conducting necessary enquiry, if required and necessary, before the order under Section 263 is passed. In such cases, the order of the Assessing Officer will be erroneous because the order passed is not sustainable in law and the said finding must be recorded. CIT cannot remand the matter to the Assessing Officer to decide whether the findings recorded are erroneous. In cases where there is inadequate enquiry but not lack of enquiry, again the CIT must give and record a finding that the order/inquiry made is erroneous. This can happen if an enquiry and verification is conducted by the CIT and he is able to establish and show the error or mistake made by the Assessing Officer, making the order unsustainable in Law.

In some cases possibly though rarely, the CIT can also show and establish that the facts on record or inferences drawn from facts on record per se justified and mandated further enquiry or investigation but the Assessing Officer had erroneously not undertaken the same. However, the said finding must be clear, unambiguous and not debatable. The matter cannot be remitted for a fresh decision to the Assessing Officer to conduct further enquiries without a finding that the order is erroneous. Finding that the order is erroneous is a condition or requirement which must be satisfied for exercise of jurisdiction under Section 263 of the Act. In such matters, to remand the matter/issue to the Assessing Officer would imply and mean the CIT has not examined and decided whether or not the order is erroneous but has directed the Assessing Officer to decide the aspect/question.

17. This distinction must be kept in mind by the CIT while exercising jurisdiction under Section 263 of the Act and in the absence of the finding that the order is erroneous and prejudicial to the interest of Revenue, exercise of jurisdiction under the said section is not sustainable. In most cases of alleged "inadequate investigation", it will be difficult to hold that the order of the Assessing Officer, who had conducted enquiries and had acted as an investigator, is erroneous, without CIT conducting verification/inquiry. The order of the Assessing Officer may be or may not be wrong. CIT cannot direct reconsideration on this ground but only when the order is erroneous. An order of remit cannot be passed by the CIT to ask the Assessing Officer to decide whether the order was erroneous. This is not permissible. An order is not erroneous, unless the CIT hold and records reasons why it is erroneous. An order will not become erroneous because on remit, the Assessing Officer may decide that the order is erroneous. Therefore CIT must after recording reasons hold that the order is erroneous. The jurisdictional precondition stipulated is that the CIT must come to the conclusion that the order is erroneous and is unsustainable in law. We may notice that the material which the CIT can rely includes not only the record as it stands at the time when the order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the CIT [see CIT vs. Shree Manjunathesware Packing Products, 231 ITR 53 (SC)]. Nothing bars/prohibits the CIT from collecting and relying upon new/additional material/evidence to show and state that the order of the Assessing Officer is erroneous.

18. It is in this context that the Supreme Court in Malabar Industrial Co. Ltd. vs. Commissioner of Income Tax, (2000) 243 ITR 83 (SC), had observed that the phrase „prejudicial to the interest of Revenue‟ has to be read in conjunction with an erroneous order passed by the Assessing Officer. Every loss of Revenue as a consequence of an order of the Assessing Officer cannot be treated as prejudicial to the interest of Revenue.

Thus, when the Assessing Officer had adopted one of the courses permissible and available to him, and this has resulted in loss to Revenue; or two views were possible and the Assessing Officer has taken one view with which the CIT may not agree; the said orders cannot be treated as an erroneous order prejudicial to the interest of Revenue unless the view taken by the Assessing Officer is unsustainable in law. In such matters,the CIT must give a finding that the view taken by the Assessing Officer is unsustainable in law and, therefore, the order is erroneous. He must also show that prejudice is caused to the interest of the Revenue.”

Other foregoing judicial precedents quoted at the assessee’s behest also reiterate the very legal proposition. We adopt the foregoing detailed reasoning mutatis mutandis to accept the assessee’s above-stated arguments on this latter aspect as well to set aside and reverse the PCIT’s revision order under challenge dated 20.03.2017. Regular assessment dated 30.03.15 forming subject matter of the impugned revision proceedings stands restored as a necessary corollary.

13. This assessee’s appeal is allowed.

Order is pronounced in the open court on 22.10.2020.

Sd/-

(P.M. Jagtap)

Sd/-

(S. S. Godara)

VICE-PRESIDENT JUDICIAL MEMBER

Kolkata;

Date: 22/10/2020